In a recent discussion with a colleague, I suggested this number was $1.2 million. He said $9 million. Turns out the real answer, which is surprisingly hard to find, probably falls somewhere in between $1.2 million and $9 million. I have read several articles that put it in the range of $3 to $5 million.
Joshua Kennon, author of The Complete Idiot’s Guide to Investing, 3rd Edition, discusses this topic in more detail in an article posted to his blog in September 2011. He cites several sources and points out the differing methods used by the Federal Reserve Board (which uses the $9 million figure) and the IRS (which favors $1.2 million) to arrive at their numbers.
Regardless of the net worth needed to enter the top 1%, the media usually focuses on the amount of a household’s annual income as what really determines what makes someone rich. We know the income of the rich is growing faster than the income of the poor and middle class. What isn’t reported as often is that the percentage of Americans considered “rich” is also increasing by leaps and bounds. This is different from the rich getting richer. This means an increasing number of Americans are joining the ranks of the rich and the upper middle class.
In June 2016, Stephen J. Rose, a nationally recognized labor economist affiliated with the Income and Benefits Policy Center at the Urban Institute, published a report titled “The Growing Size and Incomes of the Upper Middle Class.” His research covered a 36-year period from 1979 through 2014. He found that the number of households earning $350,000 or more a year (adjusted for inflation) increased eighteen times, from 0.1% of the population in 1979 to 1.8% in 2014. The upper middle class, those households earning between $100,000 to $350,000, increased two and one-half times, from 12.9% to 29.4%.
With more people earning more money and moving into the rich and upper middle class categories, it would stand to reason that fewer people would be left in the categories of middle class, lower middle class, and poor. The middle class, households earning $50,000 to $100,000, shrank from 38.8% to 32.0%. The lower middle class, households earning from $30,000 to $50,000, declined from 23.9% to 17.1%. The poor, households earning under $30,000, contracted from 24.3% to 19.8%.
That is really good news. It means that today, the average American is earning more money than was the case 36 years ago. Perhaps our economic system isn’t as broken as some would have us believe.
With so many political candidates and activists focused on issues like income inequality, it’s easy to assume that more and more Americans are sinking to the bottom economically. Before making such assumptions, it’s important to factor in real data like that cited in Rose’s report.
The plight of those who unfortunately remain on the bottom is a real concern that deserves attention. Yet it is only one part of the whole picture. Many others are able to move upward, an individual and societal accomplishment that is worth celebrating.
Instead of taking more from those who do succeed, it would be more useful to focus on what we can do to help others emulate them. The middle and upper middle classes tend to receive less attention than either the poor or the rich, yet these categories make up the majority of Americans. There is always room for others to join them.